A Comparative Analysis of IPO Proceeds Under Alternative Regulatory Environments : A Comment

Benveniste and Wilhelm (1990) address the problem of an Initial Public Offer where the issuer uses the bookbuilding method to elicit information from potentially informed regular investors. Bamp;W contend that regulatory constraints on the ability of underwriters to price discriminate between these investors can reduce the proceeds available to the issuer. This Comment corrects errors in the derivation of the model and clarifies their central results accordingly. Only under the assumption that regular institutional investors are, on average, less well informed than ordinary retail investors may the uniform pricing constraint bind. Otherwise, a uniform pricing restriction does not reduce IPO proceeds. When regular institutional investors are, on average, at least as well informed as ordinary retail investors we can now rule out the need for price discrimination